Define and briefly discuss the NAIC and explain its purpose

-Define and briefly discuss the N.A.I.C. and explain its purpose and authority.

-What is the most important reason for insurance regulation? Briefly explain.

Solution

a) The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S. The NAIC is an Internal Revenue Code Section 501(c)(3) non-profit organization.

Purpose and Authority:
The fundamental reason for government regulation of insurance is to protect American consumers. State systems are accessible and accountable to the public and sensitive to local social and economic conditions. State regulation has proven that it effectively protects consumers and ensures that promises made by insurers are kept. Insurance regulation is structured around several key functions, including company licensing, producer licensing, product regulation, market conduct, financial regulation and consumer services.

b) The most important reason for insurance regulation is that in absence of this interest of consumers are at risk and it will defeat the only purpose of the insurance that is to guard against the financial losses. One of the reasons for regulation is to prevent competition that routinely causes insurers to go out of business, leaving consumers unable to collect on claims. Insolvency regulation has historically been a primary focus of insurance regulation. After several insolvencies in the 1980s, state regulators and the National Association of Insurance Commissioners (NAIC) enacted risk-based capital standards and implemented an accreditation program to help identify and prevent future insolvencies. As far fewer insolvencies occurred in the 1990s, state regulators appear to be doing a better job.